Advanced financial accounting. In this presentation we’re going to talk about the consolidation process with a differential we’re going to look at the component parts with a simple example a simple calculation, you’re ready to account with advanced financial accounting, consolidation with differential example. So here’s going to be the basic scenario for many of the practice problems we will be looking with. We have P and S, there’s going to be a parent subsidiary relationship in which we will be making consolidated financial statements. How did this situation take place what constituted this situation, we’re going to say that in this example, P is purchasing the stocks of S. So notice they’re purchasing the stocks of s and therefore negotiating the stock price, which we’re going to say is $1,000 here. Now to simplify this example, you first want to think about this as p purchasing 100% of the stock of s for $1,000. And then once they have control, anything over 51% would then be controlled.
Advanced financial accounting PowerPoint presentation in this presentation will discuss a consolidation process where we have a parent subsidiary relationship and the subsidiary sells additional shares to the parent. So we have a situation where we have the subsidiary selling additional shares to the parent, what’s going to be the effect on the Consolidated Financial Statements get ready to account with advanced financial accounting. We’re talking about a situation here where the subsidiary is going to sell additional shares to the parent and the price is going to be equal to the book value of the existing shares. In that case, it’s going to increase the parents ownership percent, because the parent now has more stocks and no one else got more stocks. Therefore, their percent ownership is increasing. The increase in the parents investment accounts will equal the increase in the stockholders equity of the subsidiary the book value of the non controlling interest is not changed and the normal consolidation entries will be made based on the parents and new ownership percent. So obviously when we do The consolidation entries, we’re going to be basing them on the new ownership percent, that’s going to be the more simple kind of situation where we have the price equal to the book value. What if there’s a sale of additional shares to the parent at an amount of different than the book value, so we still have shares going from the subsidiary to the parent, but now the amount is different than the book value. This increases the carrying amount of the parents investment by the fair value of the consideration. So in other words, the carrying amount of the parents investment in the subsidiary is going to go up by that what was paid for it that consideration given whether that be cash at the fair value of something other than cash. At consolidation, the amount of a non controlling interest needs to be adjusted to reflect the change in its interest in the subsidiary.
Advanced financial accounting PowerPoint presentation. In this presentation we will discuss a consolidation process where we have a parent subsidiary relationship and the subsidiary sells additional shares to a non affiliate. So we have the subsidiary selling shares not to the parent, but to a non affiliate what will be the effect on the consolidation process? Get ready to account with advanced financial accounting. We are talking about a situation here where the subsidiary is selling more stock or additional stock to someone outside of the organization, someone who is not affiliated not to the parent or some other subsidiary, what will be the effect in the consolidation process? It’s going to increase the total stockholders equity of the consolidated entity by the amount received by the subsidiary in the sale. That of course would make sense because if you imagine the transaction taking place, then if they got cash for it, for example, cash would be going up the other side going to the equity so it’s going to be increasing the total stockholders equity will increase total shares outstanding for the subsidiary reducing the percent ownership of the parent company. So if the subsidiary then issues more shares and they didn’t go to the parent, then that means there’s going to be more shares outstanding. That means the shares that the parent owns will go down, therefore, their percentage ownership will typically go down. In that case, we’ll increase the amount assigned to the non controlling interest.
In this presentation, we will expand on the logistics of internal expansion, get ready to act, because it’s time to account with advanced financial accounting. We’re going to take a look now at the steps of the internal expansion. So note we have the two categories of expansion, the internal expansion and the external expansion, internal expansion with a company growing, we’re imagining the company growing, they can either grow internally make it another sub subsidiary, possibly, that would be owned by the parent company creating a parent subsidiary relationship internally, or has some kind of external expansion where we have two separate entities that are going to be together in some way, shape or form. So here, we’re talking about the internal expansion. So we have one company that is then thinking about expanding how are they going to put that expansion together? We’re thinking about the setting up then in this case of another legal entity such as a subsidiary, what steps for that? Well, first, you’re going to have a sub sub subsidiary B. created. So you get the parent company is going to be creating the subsidiary, then we have assets and liabilities are transferred to the new entity. So we’re imagining we have one company that wants to expand possibly have another division or another location that they will be expanding into. They make this subsidiary so they another legal entity created, we typically will think of another corporation that is owned by the prior Corporation, parent subsidiary relationship, the assets and liabilities that are going to be controlled or be part of that new segment are going to be transferred from the parent company now to the subsidiary company. And the key point here is that it’s going to be transferred at book value. And you might be thinking after looking at the external expansion, where you have two separate entities that are coming together and the need for us to then use the basically the acquisition method treat it basically like a sale happening.
In this presentation, we will take a look at business combination accounting methods, both historic methods and the current methods get ready to act, because it’s time to account with advanced financial accounting. We’re going to start off with business combinations from the past, these are not the current method that we’re going to be using. However, it’s good to have some historical context so that if you hear these methods, you know what you’re talking about. We also want to think about these concepts in terms of just a logistical standpoint. If you were to make these laws, then how would you do it? What are some of the challenges that have happened? And by looking through the historical process, you can kind of think about, okay, these are what were put in place, I see why those were put in place here that changes that are happening, we could see why the changes are happening, therefore have a better understanding of what we are doing, and how the current process is being put in place and why the decisions were made to put it in place. So in the past, we had combinations methods that included the purchase method and the pooling of interest. method. So they then what happened is the pooling of interest method was taken away by faz B. So faz B said, Hey, we’re not going to allow anymore, the pooling of interest method, and then the purchase method has been replaced with the acquisition method. So if you hear the purchase method, that in essence is what we’re currently doing. However, we changed the name from the purchase method to the acquisition method.
In this presentation, we’re going to continue on with our discussion of acquisition accounting, this time focusing in on the concept of goodwill. Get ready, because it’s time to account with advanced financial accounting. First question is, what is goodwill. So it’s an intangible factors that allow a business to earn above average profits. So the way you might want to think about that is the first thing about a business that isn’t being purchased and sold. If you just got one business that started from scratch, they just started doing business, they started earning revenue, then you can look at their financial statements, they got the they got the balance sheet, assets minus liabilities is the book value of the company, and then the income statement, which is their performance. Now, if you were to say, Hey, is this company worth more than their equity than their assets minus the liabilities than their net assets? In other words, if it is, then you’re saying hey, there must be some intangible factor that’s not really on the balance sheet that would explain the reason why the you know the value of them because most likely through Profit generation, after the the perceived ability, the likely ability to earn profit in the future is greater than just what’s on the balance sheet assets minus liabilities. So you would think then that many companies, if a company is doing well, then there’s going to be some kind of intangible factor there. That’s not basically on the balance sheet that basically explains why the company is doing better than then just the value of the company being assets minus liabilities. So in other words, if we were to purchase the company, you would think that you would purchase it for their assets minus the liabilities, that’s what they consist of, that’s breaking them down to their parts.